There was a presentation at ETech today on a topic that interests me — how to reinvent credit ratings given that the existing system failed catastrophically. The job of ratings firms like Moody’s and Standard & Poor’s is to rate the ability of businesses to repay their debts. Many firms that have collapsed retained AAA ratings right up to their moment of failure.
There have been some proposals that the federal government take over the traditional role of the ratings agencies, but I’ve been persuaded that’s not the right answer. Could an open data effort supplant the private ratings firms? It seems possible, given that the private agencies do not insure their predictions in any way. There was no financial penalty for the ratings agencies for completely missing the boat on AIG’s horribly bad bets on the real estate market.
I am very interested in seeing some real innovation in this business. It’s certainly overdue.